What is meant by repudiation of the parties obligations in terms of a contract ?

There are two types of breach of contract. The first is where a party fails to fulfil an obligation in terms of the contract that is due. For example a contractor fails to complete a project by the agreed date.

The second type of breach of contract is called a repudiation where a party through conduct or by its words evinces an intention not to be bound by the agreement. This is also called anticipatory breach and takes place before the party is obliged to complete its obligation, whatever it may be, in terms of the agreement.

When a defaulting party has breached a contract, the innocent party has an election. Either to accept the breach and terminate the contract and sue for damages, or to reject the breach and seek specific performance namely the enforcement of the agreement.

Generally once an election has been made, a party may not subsequently change it. However in Primat Construction v Nelson Mandela Bay Metropolitan Municipality(1075/2016) [2017] ZASCA 73 (1 June 2017) this principle was revisited. Lewis JA gave the judgment. The contract that the parties had concluded was covered by the standard terms in the industry, embodied in the Special Conditions of Contract and the General Conditions of Contract for Construction Works (2004) issued by the South African Institute of Civil Engineering. 

The Municipality purported to terminate the agreement. It was common cause that the termination was not a proper termination in terms of the agreement and constituted a repudiation of the agreement. The contractor elected not to accept the breach and elected to be bound by the agreement by advising the Municipality that it wished to abide by the contract. However the Municipality persisted in its breach by appointing other contractors. 

The contractor then took the following steps;-

Lewis JA

“On 9 February 2012 the attorneys Adams & Adams, representing Primat, wrote to the Municipality advising that the purported termination by it of the contract constituted a repudiation. The attorneys referred also to the ‘further repudiation’ by the Municipality in appointing other contractors and in not permitting Coface to mitigate its damages. They stated that the ‘Contractor hereby gives notice of its election to now accept such repudiation and hereby cancels the contracts in question’. They advised also that the letter constituted notice, in terms of s 3(1)(a) of the Institution of Legal Proceedings against Certain Organs of State Act 40 of 2002, to the Municipality, as an organ of state, that Primat intended to sue for damages in the sum of R22 million.” 

The contractor thereafter instituted an action for damages against Municipality, who then pleaded that the contractor was not entitled to cancel the agreement and sue for damages because it had made an election to abide by the contract. The trial court found in favour of the contractor, which judgment was successfully taken on appeal to the full bench of the Eastern Cape High Court, and ultimately the matter ended up before the Supreme Court of Appeals (“SCA”).

The trial court found that an innocent party is entitled to change its election if there is a further repudiation by the defaulting party. In this regard the trial court relied upon the judgment of Sandown Travel (Pty) Ltd v Cricket South Africa 2013 (2) SA 502 (GSJ).

Lewis JA:-

There, Wepener J had held that while, ordinarily, a party had to choose which remedy to pursue on breach by the other of a contract, and was bound by the choice, there is authority for the view that the innocent party could change that election after giving the party in breach the opportunity to perform. If he or she persisted in the repudiation, thus failing to repent, the innocent party could change his or her election and choose to treat the contract as at an end. The term ‘repent’ was used by the court in Cohen v Orlowski 1930 SWA 125 and adopted by Wepener J in Sandown Travel. I shall return to the case law in due course.”

Leiws JA noted:-

“ On appeal to the full court, relying on a passage discussing Sandown Travel in 2013 Annual Survey of South Africa Law pp 570-572, Lowe J held that in order for the aggrieved party to change his or her election, there had to be a further act of repudiation after the election had been made. Only then could a new election be made.”

The court a quo found that the Municipality had been consistent in its repudiation and because there had been no further or new repudiation, the contractor was not entitled to change its election. In other words there would have to be a further repudiation by the defaulting party which would then entitle the innocent party to change its election from abiding by the contract to cancelling the contract and suing for damages.

The SCA took a different view. Where a defaulting party is given an opportunity by the innocent party to repent and to effectively purge its repudiation, but does not do so, then the innocent party is entitled to change its election and cancel the agreement.

Lewis JA held:-

“ The requirement of a new and independent act of repudiation by the Municipality before Primat could change its election and exercise its right to cancel and claim damages is not one mentioned in any of the earlier authorities. And, as Primat submits, it makes no sense because it would allow the defaulting party who steadfastly refuses to comply with the contract to keep the contract alive until it commits another act of repudiation.

[27] The Municipality argues, on the other hand, that to allow a change of election would negate the fundamental principle that on breach, an aggrieved party must make an election and is then bound by it. The argument fails to take into account the fact that the doctrine of election is not inviolable: the double-barrelled procedure, sanctioned as early as Ras v Simpson, allows the aggrieved party to claim in the same action specific performance, and in the event of non-compliance, cancellation and damages. The repentance principle does just that. The aggrieved party gives the defaulting party the opportunity to repent of the breach, and to perform. If the defaulting party continues to refuse or fail to perform, the aggrieved party should then be entitled to change its election, and cancel and claim damages.

[28] In my view, the Municipality persisted in its repudiation. It refused Primat access to the site, appointed new contractors and said that the contract was terminated. The objective construction of that conduct showed an unequivocal intention on the part of the Municipality no longer to be bound. That was how Primat reasonably perceived it.”

Accordingly the appeal was upheld enabling the contractor to persist with its claim for damages against the Municipality.

If you require any further information please contact our offices Allardyce and Partners on 011-234-2125 or email kevin@allardyce.co.za or meekness@allardyce.co.za

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